OM331 Chapter 2

Competitiveness,
Strategy, and
Productivity
McGraw-Hill/Irwin
Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
You should be able to:

1. List the three primary ways that business
2.
3.
4.
5.
6.
7.
organizations compete
Explain five reasons for the poor competitiveness of
some companies
Define the term strategy and explain why strategy is
important
Discuss and compare organization strategy and
operations strategy, and explain why it is important to
link the two
Describe and give examples of time-based strategies
Define the term productivity and explain why it is
important to organizations and countries
Provide some reasons for poor productivity and some
ways of improving it
EM/OM331 - Fall 2013
2-2
Better quality, higher productivity, lower costs,

and the ability to respond quickly to customer
needs are more important than ever and
the bar is getting higher
2-3
This chapter focuses on three separate, but
related that are vitally important to business

organizations:
Competitiveness Operations &
Marketing
Strategy Operations DecisionMaking
Productivity Operations
Management
Operations
Finance
Marketing
2-4
Competitiveness:
How effectively an organization meets the
wants and needs of customers relative to others

that offer similar goods or services
Organizations compete through some
combination of their marketing and operations
functions
What do customers want?
How can these customer needs best be
satisfied?
2-5
Identifying consumer wants and/or needs

Basic input to decision-making process;
Central to competitiveness
Ideal = achieve a perfect match
Price and Quality
Impact consumer buying decisions (trade-
offs)
Advertising and Promotion
Attract buyers, inform potential customers
about product and service features
2-6
1.
Product and service design match financial resources,

operations capabilities, supply chain capabilities, consumer wants
and needs
2.
Cost and productivity affects pricing decisions and profits
3.
Location cost and convenience
4.
Quality materials, workmanship, design, service
5.
Quick response new/improved products to market, order

delivery, customer complaints
6.
Flexibility response to changes (agility)
7.
Inventory management match supplies of goods with demand
8.
Supply chain management coordinate internal/external

operations to achieve timely and cost-effective delivery of goods
9.
Service after sale or work in progress
10. Managers and workers competent, motivated, skilled, idea
generation
2-7
1. Neglecting operations strategy

2. Failing to take advantage of strengths and
opportunities and/or failing to recognize

competitive threats
3. Too much emphasis on short-term financial
performance at the expense of R&D
4. Too much emphasis in product and service design
and not enough on process design and
improvement
5. Neglecting investments in capital and human
resources
6. Failing to establish good internal communications
and cooperation
7. Failing to consider customer wants and needs
2-8
Mission - The reason for an organizations existence

States the purpose of the organization
Should answer the question What business are we in?
Serves as the basis for organizational goals
Goals - Provide detail and the scope of the mission
Goals can be viewed as organizational destinations
Serve as the basis for organizational strategies
Strategy - A plan for achieving organizational goals
Serves as a roadmap for reaching the organizational destinations
3 basic business strategies:
Low cost
Responsiveness
Differentiation from competitors
2-9
FedEx Corporation will produce superior financial
returns for its shareowners by providing high

value-added logistics, transportation and related
information services through focused operating
companies. Customer requirements will be met in
the highest quality manner appropriate to each
market segment served. FedEx Corporation will
strive to develop mutually rewarding relationships
with its employees, partners and suppliers. Safety
will be the first consideration in all operations.
Corporate activities will be conducted to the
highest ethical and professional standards.
http://ir.fedex.com/documentdisplay.cfm?DocumentID=125
2-10
Organizational strategies
Overall strategies that relate to the entire
organization
Support the achievement of organizational goals
and mission
Functional level strategies
Strategies that relate to each of the functional
areas and that support achievement of the

organizational strategy
2-11
Tactics
The methods and actions taken to accomplish
strategies
The how to part of the process
Operations
The actual doing part of the process
2-12
Mission
Goals
Organizational Strategies
Functional Strategies
Tactics
2-13
Core Competencies
The special attributes or abilities that give an

organization a competitive edge
To
be effective, an organizations core

competencies and strategies need to be
aligned
2-14
Organizational
Strategy
Operations Strategy
Examples of Companies or Services
Low Price
Low Cost
U.S. first-class postage

Wal-Mart
Responsiveness
Differentiation:
High Quality
Short processing times
McDonalds restaurants
On-time delivery
FedEx
High performance design

and/or high quality
processing
Sony TV
Consistent Quality
Coca-Cola
Differentiation:
Newness
Innovation
3M, Apple
Differentiation:
Variety
Flexibility
Burger King (Have it your way)
Volume
McDonalds (Buses Welcome)
Differentiation:
Service
Superior customer service
Disneyland
Differentiation:
Location
Convenience
IBM
Supermarkets; Mall Stores
2-15
Effective strategy formulation requires taking into
account:
Core competencies
Environmental scanning monitoring of events and
trends that present threats or opportunities

SWOT links organizational and operational strategies
Strengths & Weaknesses Internal, Operations
Opportunities & Threats External, Marketing
Successful strategy formulation also requires
taking into account:
Order qualifiers - Characteristics that customers
perceive as minimum standards of acceptability for

a product or service to be considered as a potential
for purchase
Order winners - Characteristics of an
organizations goods or services that cause it to be
perceived as better than the competition
2-16
Key Internal Factors

1. Economic conditions
1. Human Resources
2. Political conditions
2. Facilities and equipment
3. Legal environment
3. Financial resources
4. Technology
5. Competition
6. Markets
4. Customers
5. Products and services
6. Technology
7. Suppliers
8. Other patents, labor
relations, company
image, etc.
2-17
The approach, consistent with organization
strategy, that is used to guide the

operations function.
Relates to products, processes, methods,
operating resources, quality, costs, lead
times, and scheduling.
To be effective, must be linked to and
consistent with overall organization
strategy
Decision Area
What the Decisions Affect
Product and service design
Costs, quality, liability, and environmental issues
Capacity
Cost, structure, flexibility
Process selection and

layout
Costs, flexibility, skill level needed, capacity
Work design
Quality of work life, employee safety, productivity
Location
Costs, visibility
Quality
Ability to meet or exceed customer expectations
Inventory
Costs, shortages
Maintenance
Costs, equipment reliability, productivity
Scheduling
Flexibility, efficiency
Supply chains
Costs, quality, agility, shortages, vendor relations
Projects
Costs, new products, services, or operating systems
2-19
Strategy that focuses on quality in all
phases of an organization
Pursuit of such a strategy is rooted in a
number of factors:
Trying to overcome a poor quality reputation
Desire to maintain a quality image
Desire to catch up with the competition
Part of a cost reduction strategy
2-20
Strategies that focus on the reduction of time needed
to accomplish tasks
It is believed that by reducing time, costs are lower, quality is
higher, productivity is higher, time-to-market is faster, and

customer service is improved
Areas where organizations have achieved time
reductions:
Planning time
Product/service design time
Processing time
Changeover time
Delivery time
Response time for complaints
2-21
A strategic approach for competitive advantage that
emphasizes the use of flexibility to adapt and prosper in an

environment of change
Involves the blending of cost, quality, and reliability with
flexibility
Processing aspects: quick equipment changeovers,
scheduling, innovation
Product/Service aspects: varying output volumes and product
mix
Requires careful planning to achieve a system that
includes people, flexible equipment, information

technology
Reducing the time needed to perform work is one of the
ways an organization can improve productivity.
2-22
A top-down management system that organizations
can use to clarify their vision and strategy and

transform them into action
1. Develop objectives
2. Develop metrics and targets for each objective
3. Develop initiatives to achieve objectives
4. Identify links among the various perspectives:
Finance
Customer
Internal business processes
Learning and growth
5. Monitor results to improve strategic performance
2-23
2-24
A measure of the effective use of
resources, usually expressed as the ratio

of output to input
Productivity measures are useful for:
tracking an operating units performance over
time
judging the performance of an entire industry or
nation
2-25
High productivity is linked to higher standards of
living
As an economy replaces manufacturing jobs with lower
productivity service jobs, it is more difficult to maintain

high standards of living
Higher productivity relative to the competition
leads to competitive advantage in the

marketplace
Pricing and profit effects
For an industry, high relative productivity makes it
less likely it will be supplanted by foreign industry
2-26
Productivity =
Output
Input
Partial Measures
Output
Output Output Output
;
;
Single Input Labor Capital Machine
Multifactor Measures
TotalMeasure
Output
Energy
Output
Output
Output
;
;
Multiple Inputs Labor + Machine Labor + Capital + Energy
Goodsorservicesproduced
Allinputsusedtoproducethem
2-27
Units produced: 5,000

Standard price: $30/unit
Labor input:
500 hours
Cost of labor:
$25/hour
Cost of materials:
$5,000
Cost of overhead:
2x labor cost
What is the
multifactor
productivity?
2-28
MultifactorProductivity =
Output
Labor + Material + Overhead
5,000 units $30/unit

(500 hours $25/hour) + $5,000 + (2(500 hours $25/hour))
$150,000
$42,500
= 3.5294
What is the implication of an unitless measure of productivity?
Calculations of multifactor productivity measure inputs and outputs
using a common unit of measurement, such as cost. The UOM
must be same for all factors in the denominator.
2-29
Currentproductivity Previousproductivity
ProductivityGrowth =
100%
Previousproductivity
Example: Labor productivity on the ABC assembly line was 25 units per hour in
2009. In 2010, labor productivity was 23 units per hour. What was the
productivity growth from 2009 to 2010?
ProductivityGrowth =
23 25
100% 8%
25
2-30
Service sector productivity is difficult to measure and
manage because
It involves intellectual activities

It has a high degree of variability
A useful measure related to productivity is process
yield
Where products are involved

ratio of output of good product to the quantity of raw material
input.
Where services are involved, process yield
measurement is often dependent on the particular

process:
ratio of cars rented to cars available for a given day

ratio of student acceptances to the total number of students
approved for admission.
2-31
Methods
Capital
Technology
Quality
Management
2-32
Standardization
Safety
Quality
Shortage of skilled
Internet Usage
workers
Layoffs
Labor turnover
Workspace design
Incentive plans
Equipment
breakdowns
Shortages
Computer viruses
Searching
Scrap rates
New workers
Education level
Employee health
1. Develop productivity measures for all operations

2. Determine critical (bottleneck) operations
3. Develop methods for productivity improvements
4. Establish reasonable goals
5. Make it clear that management supports and
encourages productivity improvement
6. Measure and publicize improvements
Dont confuse productivity with efficiency!

2-34

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Competitiveness,

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

You should be able to:

EM/OM331 - Fall 2013

Better quality, higher productivity, lower costs,

the bar is getting higher

EM/OM331 - Fall 2013

This chapter focuses on three separate, but

related that are vitally important to business

EM/OM331 - Fall 2013

wants and needs of customers relative to others

EM/OM331 - Fall 2013

Identifying consumer wants and/or needs

about product and service features

EM/OM331 - Fall 2013

Product and service design match financial resources,

Cost and productivity affects pricing decisions and profits

Location cost and convenience

Quality materials, workmanship, design, service

Quick response new/improved products to market, order

Flexibility response to changes (agility)

Inventory management match supplies of goods with demand

Supply chain management coordinate internal/external

Service after sale or work in progress

10. Managers and workers competent, motivated, skilled, idea

EM/OM331 - Fall 2013

1. Neglecting operations strategy

opportunities and/or failing to recognize

Mission - The reason for an organizations existence

EM/OM331 - Fall 2013

FedEx Corporation will produce superior financial

returns for its shareowners by providing high

EM/OM331 - Fall 2013

areas and that support achievement of the

EM/OM331 - Fall 2013

EM/OM331 - Fall 2013

The special attributes or abilities that give an

be effective, an organizations core

EM/OM331 - Fall 2013

Examples of Companies or Services

U.S. first-class postage

Short processing times

High performance design

Burger King (Have it your way)

McDonalds (Buses Welcome)

Superior customer service

EM/OM331 - Fall 2013

Effective strategy formulation requires taking into

trends that present threats or opportunities

taking into account:

Order qualifiers - Characteristics that customers

perceive as minimum standards of acceptability for

Key Internal Factors

2. Facilities and equipment

The approach, consistent with organization

strategy, that is used to guide the

What the Decisions Affect

Product and service design

Costs, quality, liability, and environmental issues

Cost, structure, flexibility

Process selection and

Costs, flexibility, skill level needed, capacity

Quality of work life, employee safety, productivity

Ability to meet or exceed customer expectations